GATEWOOD LTD. v. SILVER NOBLE INVESTMENT LTD.

1992, No. A3638

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HEADNOTE

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Conveyancing - interpretation of s.13 (1) Conveyancing and

Property Ordinance, Cap. 219 - meaning of "Crown lease".

1992,No. A3638

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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1. This is an appeal against the decision of Master Gould who, on 24th August 1992 upon hearing the plaintiff's application for judgment pursuant to 0.14, gave the defendant leave to defend the action.. The appeal raises the issue of the construction of section 13(1) of the Conveyancing & Property Ordinance, Cap.219. It is an important and practical point. The parties have agreed that my decision should be published.

2. By agreement dated 27th March 1992, the plaintiff agreed to buy and the defendant to sell property which included sections A, B & C of Lot No. 162 in Demarcation District No. 258 at Sai Kung in the New Territories. It is not' in dispute that the agreement provided that the vendor should give good title to the property. It is not in dispute that the plaintiff's solicitors asked for perusal of a copy of New Grant No. 3628, being the relevant Crown lease, for Lot 162. It is not in dispute that the New Grant was not produced by the defendant's solicitors it having been lost, presumably during the Japanese occupation of Hong Kong.

                S.13 (1) (a) of Cap 219 provides:

"Unless the contrary intention is expressed, a purchaser of land shall be entitled to require from the vendor, as proof of title to that land, only production of the Crown lease relating to the land sold and

(a)     proof of title to that land- (i) where the grant of the Crown lease was less than 15 years before the contract of sale of that land, extending for the period since that grant; or

(ii) in any other case, extending not less than 15 years before the contract of sale of that land commencing with an assignment, a mortgage by assignment or a legal charge, each dealing with the whole estate and interest in the land;"

3. It is not in dispute that, unless the parties to a sale and purchase agreement have otherwise agreed, the vendor must produce the Crown lease if required by the purchaser and, if he fails to do so, the purchaser may rescind the agreement. The New Grant not having been produced, the plaintiff seeks to rescind the agreement pursuant to provision contained therein; to recover its deposit; and damages for breach of contract.

4. There is ample authority for this proposition. See CHAN Kam-sing & another v. LAM Ping-ping, Grace 1989 M.P.3276, a decision of Deputy Judge Findlay Q.C. (unreported) and Gold Check Investment Ltd. v. Star . Investment Limited 1992 M.P.592, a decision of Godfrey J. (unreported). The judges did not have drawn to their attention, however, the following provisions of the New Territories (Renewable Crown Leases) Ordinance, Cap.152:

"3. This Ordinance applies to every Crown lease existing immediately before the expiration of the 30th day of June 1973 under which land in the New Territories is demised for a term of seventy-five years from the 1st day of July 1898 and which contains a right of renewal for a further term of twenty-four years less three days, other than leases of land exempted from Part II of the New Territories Ordinance under subsection (2) or (3) of section 7 thereof.

4. (1) In the case of an existing Crown lease of a lot which has not been divided into sections before the 1st day of July 1973, the right of renewal contained in the lease shall be deemed to have been exercised by the person entitled to that right and on that date there shall be deemed to be granted to such person a new Crown lease of the land held by him immediately before that date under the existing Crown lease.

(2) In the case of an existing Crown lease of a lot which has been divided into sections before the lst day of July 1973, the right of renewal contained in the lease shall be deemed to have been exercised by the persons entitled to that right and on that date there shall be deemed to be granted to such persons separate new Crown leases of the land respectively held by them immediately before that date under the existing Crown lease.

(3) Every new Crown lease shall be deemed to be for a term of twenty-four years less three days from the 1st day of July 1973, and shall be deemed to contain

(a) where the new Crown lease is deemed to be granted under subsection (1), a reservation of the same annual Crown rent as was payable for the year ending on the 30th day of June 1973 in respect of the land to which the new Crown lease relates:

(b) where the new Crown lease is deemed to be grantet under subsection (2), a reservation of the same annual Crown rent as may appear from the Crown Rent Roll in the appropriate District Office to have been payable for the year ending on the 30th day of June 1973 in respect of the land to which the new Crown lease relates;

(c) a covenant by the lessee to pay in the same manner and on the same days as are specified in the existing Crown lease whichever of the annual Crown rents referred to in paragraphs (a) and (b) is applicable;

(d) the same covenants, exceptions, reservations, stipulations, provisos and declarations (including the right of re-entry) mutatis mutandis as are contained in the existing Crown lease of the land to which the new Crown lease relates other than-

(i) the covenant to pay the Crown rent; and (ii) the provision (if any) for fixing a new Crown rent at the expiration of the first ten years of the term; and

(iii) the right of renewal on the expiration of the term;

(e) a covenant by the lessee to perform, observe and comply with the covenants, exceptions, reservations, stipulations, provisos and declarations deemed to be contained in the new Crown lease by virtue of paragraph (d)."

5. In that Ordinance "existing crown lease" me means a lease as referred to in section 3; and "new Crown lease" means a lease deemed to be granted under section 4.

6. The effect of these provisions, according to Mr. Chow for the defendant, is that with effect from 1st July 1973 every person entitled to a right of renewal has exercised that right and been granted a new Crown lease upon terms which, by virtue of section 4(3), are not identical with the terms in the existing Crown lease. It is the new Crown lease which confers title to property upon the Crown lessee.

7. To complete the picture, Mr. Chow pointed out that any new Crown lease was further extended to 30th June 2047 by the New Territories Leases (Extension) Ordinance, Cap.150.

8. Mr. Chow's argument is that section 13 of Cap. 219 entitles a purchaser to require from the vendor, as proof of title to the land, production of the Crown lease relating to that land. He emphasized the purpose of section 13, which is proof of title to the land, and said that it refers to documents going to that proof. He said that section 13 obliges a vendor to produce the Crown lease which confers title or provides source of title to the property. It does not call for documents which, although once the root or source of title have since expired or been cancelled, discharged or otherwise made inoperable. He said that as it is the new Crown lease which confers title to the property, it is necessary only for the vendor to provide evidence (as I accept has been done in this case) of the existing Crown lease as a trigger for the new lease and for purposes such as ascertaining the terms thereof.

9. Mr. Chow asked me to consider the situation if Cap. 152 had not been enacted,.a right of renewal under an existing Crown lease had been exercised and a new Crown lease actually granted and issued. He asked whether^, the vendor would be obliged to produce the existing Crown lease as well as the new Crown lease. The answer, as Mr. Leong for the plaintiff agreed, must be no. There would be a Crown lease conferring title upon the vendor and containing in itself all the terms, covenants and conditions upon which the land was held.

10. Under section 13 of Cap. 219, a purchaser is entitled to production of the Crown lease. It is implicit that he is entitled to a sight of a tangible document. A new Crown lease granted by operation of Cap.152 does not exist as a separate physical entity. There is no new Crown lease for a vendor to produce or a purchaser to see. Cap.152 came into force in 1969, Cap.219 in 1984. The legislature cannot be taken to have enacted the provisions of section.13 of the latter Ordinance in vain.

11. I am persuaded, therefore, that Mr. Leong is right when he contends that a purchaser is entitled to see the document which subject to s.13, contains complete particulars of the terms upon which he will hold the land. That document is the existing Crown lease which effectively confers title to the land although by effluxion of time and operation of law superseded by a new Crown lease.

12. I am aware that the practice has developed of solicitors relying upon the operation of Cap.152 and seeking only evidence of the earlier lease and the terms and conditions thereof. For the reasons which I have expressed, I believe that practice to be wrong. In my view, a purchaser is entitled to production of the existing Crown lease, as defined in Cap.152, failing which he may rescind any agreement. If a vendor does not have the existing Crown lease or access thereto, he should include in the conditions of sale provision that he be not required to produce the Crown lease, but only evidence thereof.

13. Accordingly, I allow the appeal. The order of Master Gould is set aside. I give judgment for the plaintiff against the defendant for:

(a) Refund of the deposit of HK$428,800 together with interest at 11.5% from 27th May 1992 to the date of this judgment.

(b) Damages for breach of contract to be assessed.

(c)Costs of this action to be taxed.